Greetings, and welcome to the VSE Corporation Fourth Quarter and Full Year 2020 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Noel Ryan of Investor Relations. Thank you. You may begin.

Thank you. Welcome to VSE Corporation's fourth quarter and full year 2020 results conference call. Leading the call today are our President and CEO, John Cuomo; and Chief Financial Officer, Steve Griffin. The presentation we are sharing today is on our website, and we encourage you to follow along accordingly. Today's discussion contains forward-looking statements about future business and financial expectations. Actual results may differ materially and significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. Except as required by law we undertake no obligation to update our forward-looking statements. We are using non-GAAP financial measures in our presentation. The appropriate GAAP financial reconciliations are incorporated into our presentation where available, which is posted on our website. All percentages in today's discussion refer to year-over-year progress, except where noted. At the conclusion of our prepared remarks, we will open the line for questions. And with that, I would like to turn the call over to John Cuomo for his prepared remarks.

Thank you, Noel. Welcome everyone and thank you for taking the time to join our call today. During 2020, VSE successfully navigated pandemic-related disruptions for the global aviation market while continuing to execute on our multiyear business transformation plan. We refined our strategic focus while introducing a differentiated value proposition to the market with an emphasis on higher-margin products and service offerings. During the year, we won new multiyear contracts, increased our presence within existing markets, expanded our product and service capabilities, and grew our contract bidding activity and backlog. Additionally, we divested non-core assets, reduced overhead costs to align with current demand conditions, and built a new leadership team capable of driving our strategy forward and generating above-market returns. In 2020, we generated $29.5 million of adjusted net income, while growing free cash flow by more than $24 million on a year-over-year basis. We also continued to pay our quarterly dividend and reduce debt by $19 million. At a business segment level our balanced stable military and government customers and contracts offset the pandemic-related impact to our commercial market. We continue to see a recovery within our aviation markets during the fourth quarter with revenues increasing sequentially in the fourth quarter compared to the third quarter supported by improved business in general aviation and narrow-body activity together with market share gains. Although revenue passenger miles remain below historic levels, we believe the markets we serve have bottomed and are poised for recovery during the second half of 2021. Our business continues to outpace the recovery supported by a balanced commercial and business and general aviation customer mix and new business wins to offset the market decline. In our Federal & Defense segment, bidding activity increased 37% compared to the prior year. This growth in bidding activity and bookings reflects our more aggressive focus on business development and our higher-margin technical services-focused strategy. In our Fleet segment, commercial fleet and e-commerce fulfillment demand remain strong, providing a complement to our core USPS business, which remains a stable source of earnings and free cash flow. The diversification strategy for this segment is taking shape. In 2020, non-USPS revenue grew 93% compared to 2019. Turning now to slide 3 in our presentation materials. Before we share our thoughts on where we're taking the business in 2021, it's important to highlight the progress we've made during the last 12 months, including those specific actions taken to advance our business transformation and corporate strategy. New business and key account growth was a major area of focus last year and remains so in 2021. Our Honeywell awards announced in July, our exclusive landing gear distribution agreement with Triumph announced in October, together with our recently announced exclusive Life-of-Program APU distribution agreement with Pratt & Whitney Canada were all major wins for the team that validate our value proposition to the market and set the stage for both segment revenue and margin expansion in 2021. Another achievement in 2020 was within service and capability expansion where we expanded avionic MRO capabilities in our aviation segment, launched new commercial fleet and e-commerce fulfillment business units within our fleet segment, and introduced the new logistics and supply chain management division within our Federal & Defense segment. We took action to streamline operations during the past year, closed nonessential operations and reduced costs throughout the business. We've divested two noncore aviation assets, closed three facilities, and consolidated operations into strategically located Centers of Excellence while removing $13 million of annualized costs from the business. At the leadership level, we made several important organizational changes. Since I joined VSE just under two years ago, we brought aboard a new group President of Aviation, a new group President of Federal and Defense Services, a Chief Human Resource Officer; and most recently Steve Griffin, our new Chief Financial Officer, who I'm pleased to have joining me for his first VSE earnings call today. At the same time, we realigned our incentive structure to ensure a pay-for-performance model in keeping with our commitment to attracting top talent and supporting short and long-term shareholder interest. Moving now to slide 4. Earlier this week, we announced the acquisition of HAECO Special Services or HSS. HSS is a military aircraft maintenance organization providing heavy checks for the United States Air Force KC-10 fleet with strong backlog and contract revenue visibility into 2025. These capabilities expand VSE's existing U.S. Air Force program and Contract Field Team programs. This transaction provides VSE with access to new capabilities, technical expertise, and contract past performance required to provide end-to-end support for the government aircraft fleet. This acquisition will help support growth with new contract opportunities, including targeted prime and subcontractor roles on various aircraft sustainment and modification programs. This transaction, which had a total purchase price under $20 million, is a blueprint for the types of bolt-on transactions we are evaluating. The transaction was funded with cash proceeds from our heavily subscribed underwritten public offering of common stock completed earlier in January of this year, which resulted in net proceeds of $52 million. We are very excited to welcome the 275 HSS team members to the VSE family. With that, I will now turn it over to Steve Griffin, our CFO, to introduce himself and comment on our fourth quarter and full year 2020 financials.

Thanks, John, and welcome to everyone joining us today. Before I get into the financials, I want to share my initial impressions since joining the company in November 2020 from GE Aviation. Both John and I agree that the aftermarket is fragmented and inefficient, creating an opportunity for agile, well-capitalized suppliers to gain share. VSE is uniquely positioned to win in this market. Although we're a small organization, we have the deep contract experience of a much larger organization, which provides credibility with global, commercial and defense customers we serve. I view VSE as one of the best positioned small supplier platforms in the market, which is the primary reason why I'm here. I'm also here because of John's vision for the organization together with the high-caliber management team he has assembled. This is a team that understands the importance of driving culture change to achieve its strategic objectives. Culture change begins with personal accountability from the top down. Ours is a team that is committed to winning, guided by shared purpose. In my first several months with the company, I've had the opportunity to visit several of our facilities and interact with many of our employees. I have been very impressed with our in-house overhaul and engineering capabilities, as well as with our employees' focus on exceeding customer expectations. Within the organization, my mandate will be to focus on building a data-centric culture, driving financial accountability throughout the organization with a strong focus on margin rate expansion and cash flow generation, and acting with a sense of urgency to implement measurable changes that support profitable growth. Already in 2021, we've successfully completed a secondary equity offering, which added many new shareholders and increased our daily float in the stock. We announced the new life-of-program Pratt & Whitney award, and we completed our first acquisition, welcoming HAECO Special Services to VSE. Internally, with our employees, I'm seeing that the speed at which we're moving is creating a positive force for change and is making our business that much more exciting to be a part of. Across the finance function, we remain focused on delivering for our shareholders and helping to align our business priorities to our strategic initiatives. Now, moving into the financial results for the fourth quarter. Starting on slide 5, we'll cover our GAAP results. We reported total revenue of $150 million in the fourth quarter versus $195 million in the prior year period. This was primarily driven by lower aviation and Federal & Defense segment revenue, offset by slightly higher revenue from our fleet segment. Our Aviation segment reported sequentially higher revenue versus the third quarter 2020 and represents our second straight quarter of sequential revenue growth. Our reported net income for the quarter was $6 million, versus $10 million in the prior year period. On slide 6, adjusted net income was $6.2 million and our adjusted diluted earnings per share was $0.52, versus $11.5 million and $1.04 respectively in the fourth quarter of 2019. Adjusted EBITDA declined to $17.3 million in the fourth quarter versus $23.1 million for the same period in 2019. Our profitability was impacted by the lower volume in our Aviation segment. However, this was partially offset by margin expansion in our Federal & Defense segment. On slide 7, we detail the drivers of our revenue and adjusted EBITDA for the fourth quarter 2020 versus 2019, as well as for the full year 2020 versus 2019. Starting with the fourth quarter, our overall EBITDA margin rate fell from 11.8% in 2019 to 11.5% in 2020, primarily as a result of our Aviation segment and the associated impacts from the COVID-19 pandemic on revenue passenger miles. This was offset, however, by the margin improvement in our Federal & Defense segment, where the completion of certain U.S. Department of Defense contracts in addition to higher-margin, fixed-price contracts helped drive incremental profitability despite lower revenue. When looking at the full year 2020 results versus 2019, we see a similar story as in the fourth quarter, where overall EBITDA margins dropped 70 basis points from 12.1% to 11.4%. For the full year, Aviation and Fleet segment margin erosion was partially offset by improvements in our Federal & Defense segment. On slide 6, we'll cover our Aviation segment where revenue, excluding the previously divested Prime Turbines and CT Aerospace assets, declined 26% on a year-over-year basis, as lower revenue passenger miles at major airline customers resulted in reduced commercial MRO activity. Aviation segment revenue increased 7% when compared to the third quarter 2020, supported by a combination of market share gains within our parts distribution business, together with the increased demand for higher-margin technical sales from our business and general aviation customers. We continue to invest in the business's capabilities to gain incremental share of wallet and expect to see our margins increase throughout 2021. On slide 9, our Fleet segment fourth quarter revenue increased 1% on a year-over-year basis, as our growth in commercial fleet and e-commerce fulfillment offset a slight decline in USPS-related revenue. We continue to see opportunities to grow at an outsized pace with our e-commerce and commercial channels, helping to offset reductions in USPS revenue. In the quarter, our non-USPS revenue grew 83% year-over-year. And for the full year, our non-USPS revenue grew 93% year-over-year. On slide 10, our Federal & Defense segment revenue declined 29% on a year-over-year basis, primarily due to the completion of a DoD program during the first quarter of 2020. Federal & Defense segment continued the trend in 2020 of improving profitability, despite lower revenue, as we continue to diversify our offerings. We are continuing our business development efforts and saw contract bidding increase by 37% for the full year 2020 versus 2019, which helped contribute to the 97% growth in segment bookings for the fourth quarter 2020 versus the same period in 2019. Now turning to slide 11. As of December 31, 2020, we had $175 million in unused commitments available under our $350 million revolving credit facility that matures in January 2023. In addition, our total net debt was $251 million versus $269 million in the fourth quarter 2019. For the fourth quarter, our free cash flow was negative $900,000. However, this included a $10.7 million disbursement for inventory associated with our new Pratt & Whitney Canada APU distribution agreement. Excluding the effect of this new business, our underlying business generated just under $10 million for the quarter. Our ratio of net debt to trailing 12-month EBITDA was 3.3 times. Following year-end 2020 and January 2021, we priced a previously announced underwritten public offering of 1.4 million shares of common stock at a price to the public of $35 per share, resulting in net proceeds to the company of $52 million after transaction-related expenses. We expect to use net proceeds from this offering for general corporate purposes, which may include among other things financing strategic acquisitions, such as the purchase of HAECO Special Services announced earlier this week; working capital requirements for new program launches as evidenced by our recently announced Pratt & Whitney APU deal; and repaying borrowings under our revolving credit facility. With that I'll turn it back over to John.

Thanks, Steve. It's great to have you here and I'm motivated by our quick chemistry and partnership. Now turning to Slide 12. While 2020 was a year defined by the COVID-19 pandemic and our decisive response to changing market conditions, we also remained focused on transforming the business, culture, processes, strategy, systems, and organization. This foundational work gives me great confidence that 2021 will be defined as a year of growth for VSE. We have listed our strategies in the market, received positive market feedback, and are prepared to accelerate both organic and inorganic growth opportunities. Organic opportunities continue to center around aerospace distribution, commercial fleet expansion, and federal and defense backlog building. Inorganic growth centers around bolt-on acquisitions in our Aviation and Defense segment, specifically to support market niches in component repair, part distribution, supply chain, MRO, and business in general aviation, all while applying a disciplined approach to market accretive opportunities. Moving now to Slide 13. VSE's culture and business transformation continues into 2021 with a focus on new customer wins, market share gains, further product and service line expansion, and increased focus on margin expansion and inorganic growth. Within our Aviation segment, we expect to outpace the ongoing market recovery while driving organic operating margin expansion through a combination of recently awarded distribution agreements, expanded MRO capabilities, together with new partnerships that position us to capture incremental market share. We will also seek to make a deeper move into underserved niche markets, where we can leverage our expertise in proprietary part distribution and component and engine accessory MRO. Within our Fleet segment, we seek to drive commercial growth to offset a relatively flat USPS business, with above-market growth from commercial fleet customers, new commercial products, just-in-time services, along with the acceleration of e-commerce proprietary technology and e-commerce fulfillment sales. Within the Federal & Defense segment, we will seek to increase our exposure to new and existing DoD programs, specifically with respect to military aviation services, where we can leverage our existing capabilities and the new capabilities of our recently acquired business. We will continue to build strong quality backlog from core capabilities and expanded supply chain logistics, technical and aircraft maintenance and sustainment offerings. Finally, we will expand our focus on growing our share of wallet with existing Army and Navy programs with a focus on more technical higher-margin offerings. While organic growth remains a top priority in 2021, we intend to become a more active acquirer of complementary businesses that accelerate our growth strategy. Looking ahead, we anticipate 2021 will be back-end loaded with approximately 40% of adjusted EBITDA being generated in the first half and 60% in the back half of the year, as new contract activity accelerates. We anticipate progressive organic involvement in revenues across all segments as we move through the year, not including contributions from the HAECO acquisition. While we expect to be both net income and free cash flow positive for the full year 2021, we intend to invest aggressively in product inventory to support recent and future aviation program wins. We believe these investments are necessary to support our entrance into higher-margin businesses with the potential to support long-term profitable growth as these markets recover. In closing, I want to thank our investors for their ongoing support of VSE. 2021 has started on strong footing, supported by improved market conditions, new business wins, execution of recent awards, and the acquisition of HAECO Special Services. As a management team, we are excited by the significant opportunities for both organic and inorganic growth as we create value for all stakeholders. We look forward to connecting with many of you over the coming months as we share what we believe is one of the most exciting stories in the 60-year history of VSE. I want to offer a big thank you to our VSE team across the globe. We pushed the team hard in 2020 as we transformed and repositioned the business for all that is to come in 2021 and beyond. Finally, I want to again welcome the outstanding HSS employees to the VSE family and I look forward to building this business with you in the years to come. Operator, we are now ready for the question-and-answer portion of our call.

Thank you. Our first question has come from the line of Michael Ciarmoli with Truist Securities. Please proceed with your questions.

Hey. Good morning, guys. Thanks for taking the questions. Nice results.

Morning, Mike.

John, maybe you kind of went through all the detail in the prepared remarks, what is the US Postal Service obviously they are in the process, they bid out the new contract, how should we think of that in light of the current business? And of course, it's probably going to take years for them to transition to new vehicles, but how do we get comfortable with your presence supporting them? And just maybe level set us on what the expectations could be there as the Postal Service transitions to new vehicles?

Certainly. There has been a recent announcement, but we don't have all the details yet regarding delivery and contract acceptance. We've been supporting the Postal Service since the mid-1980s, specifically the LLV and the rest of the vehicle fleet. We expect this transition, which we have anticipated, to enable us to continue providing aftermarket support. We are the largest supplier of products for the Postal Service, and we see ongoing opportunities in the aftermarket. Regarding scheduling, the USPS has stated that the LLVs will remain in their fleet for at least nine years, with the new vehicles expected to arrive in late 2023 over a probable seven-year phase. Steve, did I cover everything, or is there anything else you’d like to add from a data perspective?

Got it. That's helpful. John, can you provide us with any insights on the strong new contract wins in aviation, particularly with Triumph? We know that margins in the business are currently under pressure, but can you share your thoughts on the margin profile or potential profitability for these new contracts? I'm not asking for specific margin guidance in aviation, but I would like to understand if the margins align with historical norms for these distribution and accessory repair programs. Are you experiencing any pricing power, or is there evidence of price decline? Any insights you can provide on that would be appreciated.

Certainly. Steve, I'll pass it to you shortly. As I mentioned before Steve joined, when I scaled back the business, I didn't reduce it down to the typical operating margin because I was aware of our strong pipeline. I wanted to ensure we had the resources necessary to transition the programs as swiftly as possible and to begin returning to historical margins by the latter half of the year. Steve, would you like to respond to Mike's question regarding the program margins?

Yes, we expect the business to achieve around mid-teens growth in the long run. You can anticipate that some of our distribution deals will factor into future profitability. An important aspect to discuss is our approach to working capital investments. We take a careful stance with our team to ensure we consider where to invest. When you notice larger inventory purchases, it's reasonable to assume we will have a higher margin rate in the future to offset the cost of capital. We have a thorough process for deciding where to operate and how that impacts the overall margin rate of each deal.

Got it. And last one just to be clear it sounds like more second half 2021 weighted you'll start to see some of the benefits of these deals flow through and that's kind of driving some of that EBITDA split?

Yes. That is exactly what you should expect. As we mentioned earlier, we're starting to see some of the fruits of the new programs. They're not big dollars quite yet, but we are definitely seeing the traction in the market. But you should expect the larger dollars to start to accrete as the second half continues.

Got it. I will jump back in the queue.

The last thing I want to add, Mike, is that we closed the APU deal with Pratt right at the end of the year, and we're already seeing initial revenue from that deal in Q1.

Got it. All right, thanks guys. I will jump back in the queue.

Thank you. Our next question comes from the line of Ken Herbert with Canaccord. Please proceed with your question.

Good morning. I wanted to follow up on the comments regarding the Aviation segment. There was a sequential growth of 6% to 7% in that segment from the third quarter on the topline. Is this trend expected to continue into the first and second quarters? How should we anticipate sequential growth coming out of the fourth quarter in the Aviation segment?

Sure. Yes, Steve do you want to address that?

Sure thing. Thanks for joining Ken. Thanks for the question. Here's what I would say. I think we're anticipating that the market is going to look mostly flat sequentially from Q4 to Q1 and then we're looking at sort of modest increases from a market perspective from Q1 to Q2, with the real recovery starting in the back half. We've shared that our expectations for an aviation business to be able to grow sequentially quarter-over-quarter. And that's primarily due to the new programs and the market share gains. And then we think we've got an accelerated recovery as a result of the business in General Aviation segment which we think we're well-positioned in. At the end of the day, you'll be able to see some of the splits which we publish in the 10-K in terms of the splits between distribution and repair later. But it's safe to say that we expect to see the distribution base business pick up more quickly through the beginning of this year.

Okay, that's helpful. I wanted to ask about the HSS acquisition you just completed. Is that company focused solely on the KC-10? Can you discuss the potential timing for the new capabilities and whether other contracts might be integrated with that? Additionally, can you provide some context on how we should view that in relation to the growth contribution for either the segment or the company in 2021?

I will start off and then turn it over to you, Steve, for a deeper dive into the financials. From a strategic standpoint, this deal significantly shifts our Air Force programs from focusing solely on line maintenance on base to also including heavy maintenance off base. This expands our scope of work and positions us to bid both as a prime contractor and a subcontractor on various programs. We have two hangars in Greensboro where we're currently performing this work, and there are additional hangars available for us to begin bidding soon. Our immediate goal is to secure business, followed by integrating systems into our operations. We will also explore cross-segment opportunities within our supply chain or various component and repair businesses to enhance value. Additionally, we have some near-term opportunities that we aim to push into the pipeline, enabling our business development teams to start bidding with these new capabilities. Overall, this aligns well with our strategy to transition from traditional base operation support cost-plus work to more fixed-price, higher-margin technical projects. Steve, would you like to share how Ken should approach this from a modeling perspective?

Yes. Sure. So from a business perspective, we view the current run rate of the business to be about $25 million of revenue per year. And then, I think we shared it before earlier, but just in general, I think the business's EBITDA rate is going to be accretive. It's in excess of what we have within our FDS business. And so, you can look that up. I mean it's in the filings today as well as in the presentation in terms of the trailing 12-month EBITDA rate. But, it will be in excess of that, which is what we're excited about in terms of the transition in terms of our focus and priorities and capabilities.

That's great. I really appreciate the color. Just finally, you've really called out some really nice growth. I know, it's obviously off a small base, but in the fleet business, on the non-USPS business, can you give any more details John, on maybe some of the examples of customers, maybe some of those types of contracts? And if your visibility on that sort of the non-USPS growth and the opportunity there, how that looks into 2021 and 2022?

I'm very excited about the strategy for our Wheeler business. They possess a strong distribution asset and have traditionally served the Postal Service and government clients. Expanding into the commercial market has been a smooth transition since it operates like a commercial business. We have a few different revenue streams. The first is through our own e-commerce site, leveraging our distribution capabilities. The second is e-commerce fulfillment, where we connect our inventory with various e-commerce platforms, including general sites like Amazon and more specific automotive or heavy-duty vehicle aftermarket sites. The third is our just-in-time program with the Postal Service, which is similar to my previous experience where we become embedded and then transfer to the customer. The long-standing relationship with the Postal Service and our consistent market share demonstrate the strength of this embedded relationship and our execution. We have launched that program and now have some key platform customers, including utility vehicles and delivery vehicles, as well as a bakery company in the food services industry. These fleet owners typically adopt the just-in-time model, while those focused on transactions lean more toward our e-commerce model. We are avoiding heavy capital expenditure and brick-and-mortar focused strategies. Regarding the forecast, this business operates on a short book-to-bill cycle, which I have experienced throughout my career. It’s about gaining market share and achieving consistent month-over-month growth. We feel very confident in our plans for 2021 and the team we have assembled to execute them. In terms of modeling, we have been experiencing a double-digit growth rate, and you can expect that to continue in 2021.

Great. Thanks, John. I’ll pass it back there.

Thanks, Ken.

Thank you. Our next question has come from the line of Josh Sullivan with The Benchmark Company. Please proceed with your questions.

Hey, Josh.

Hey. Good morning, John, Noel. Welcome Stephen. Yes, just with regard to the comments on being a little more acquisitive. There's been some headlines out here over the last day or so about another aerospace OEM, looking at divestiture of some aerospace service assets. Can you just talk about the balance between organically addressing some of these opportunities that are opening up versus inorganically? Are OEM assets interesting to you at this point? Just some color on that would be great.

Yes, it's a valid question and one we often discuss. Over the past 18 months, we have focused on clarifying our strategy. We understand our target areas, our goals, and the gaps in our strategy, whether they involve geography, customers, products, or service capabilities. We take a disciplined approach to evaluate every potential acquisition or divestiture against these criteria. Additionally, we assess whether it can be culturally and operationally integrated into our business and if it aligns financially. This is essential before we proceed. Currently, we are exploring opportunities in all our segments, although we have not discussed our Fleet segment publicly as they are undergoing an ERP conversion. This prevents them from integrating a business in the early part of this year. In our other businesses, we're primarily focused on MRO capabilities and distribution assets within specific market niches. We are looking for opportunities but will maintain a very disciplined approach. We are excited about the HSS asset, which addresses a gap in our federal business and creates synergies between our Aviation and Federal segments, and we anticipate finding more assets like this in the future.

I read that HSS was averaging about 30 inductions a year. Where could that number go? Or is the number of inductions not the best way to evaluate the opportunity?

Yes, we view this opportunity positively. I have a strong affinity for end-of-life programs because they allow us to establish genuine partnerships with the OEM, which can lead to significant future opportunities in both additional end-of-life programs and other areas where they may need support. Additionally, there's typically less aftermarket activity surrounding these assets since everyone's attention is on newer assets. This aligns with our strategy, and we apply this approach across all our business segments. Another appealing factor is our strong visibility into the backlog, which supports revenue, earnings, and free cash flow generation through 2025. The next focus will be on leveraging our capabilities to enhance new business development.

Got it. Got it. And then just one last one on aviation. Can you just talk a little bit about what you're seeing in aftermarket activity maybe between business and general aviation versus commercial aerospace just as airlines gear up for a COVID recovery. Anything there coming in faster than you expected or maybe even slower than expected at this point?

Yes. I would say that business and general aviation is leading the recovery in the commercial sector. We're observing more narrow-body work compared to wide-body work. Additionally, in terms of distribution and repair, our distribution business is recovering faster than our MRO businesses. Steve, do you have any additional insights on this?

Yes. No, I think you summarized well. Distribution is going to be the area. I mentioned this earlier when we're talking about Ken, the distribution was the area that we expect to see a recovery faster. And it's just driven by our business model. 90% of our products are proprietary. So we do believe they're going to move in line with the recovery, which we're pleased about. And then as John mentioned, the DGA space, we are seeing that pick up more quickly.

Thank you for the time.

Thanks, Josh. Appreciate it.

Thank you. Our next question has come from the line of Louie DiPalma with William Blair. Please proceed with your questions.

John, Steve and Noel, good morning.

Hey, Louie. How are you?

Good morning.

Not bad. Regarding the trio of exclusive distribution agreements with Honeywell, Triumph, and Pratt. These three OEMs have massive product portfolios. And should investors view the announced contracts over the past year as starting points with these three large partners?

Absolutely. I believe there are a couple of important points to address. I aim to have a diversified business, considering both general aviation and commercial perspectives. It's crucial for us to maintain a strong balance between these two segments. From a distribution angle, we also want to represent a mix of OEMs and the aircraft involved. Therefore, we will focus on opportunities with these OEMs while ensuring we stick to our diversification strategy. We aim to develop a well-rounded portfolio in our distribution efforts. Additionally, we evaluate each partnership not only as exclusive OEM agreements but also on what other opportunities they present. For instance, with the Triumph deal regarding landing gear, we analyze what additional value that brings, such as what else customers might be purchasing, whether those are consumable and expendable products that aren't proprietary or other proprietary items that we can incorporate to enhance our market offerings. So, we consider it from both of these perspectives.

Great. That's helpful. And for the Federal & Defense business, EBITDA grew 37% in 2020. John and Steve, you and Rob Moore, appear to be executing well on the strategy to optimize profitability with the higher-margin technical services. And you also suggested that HSS acquisition is positive for the margin. I mean, with that being said, do you expect that segment to continue growing EBITDA in 2021?

Yeah. Thank you for the question, Louie. So at the end of the day, we benefited this year from a mix shift of our fixed price versus cost-plus contracts, which inevitably allowed us to take advantage of some incremental productivity and drive productivity on the contracts. That's what primarily drove some of the margin increases that we've walked through in terms of the financials earlier. What I'd say is that, that's sort of a short-term thing. So we are seeing a little bit of headwind as we face into 2021, associated with that shift in contract. However, as you're seeing, we are chasing after more of those technical services higher-margin capability. And we think the margin rates that we've demonstrated this year are sort of where we want to be as we move forward, hence why the HSS acquisition is a great place for us to continue to grow.

Great. And one final one, there's been a lot of M&A activity within defense logistics services. Recently AECOM acquired DynCorp's Amentum. Have you witnessed any change in the competitive environment, as it relates to the elimination of some key competitors? And should that also be positive for the margin structure in this business?

There are a couple of points to consider, Louie. First, we've observed that the traditional business VSE supported is experiencing some lumpiness in revenue, particularly in the federal sector, as we transition towards higher-margin, more technical services. The competition in the larger cost-plus base operations has intensified, and we have established minimum margin thresholds. Our primary focus is on driving margin growth rather than just revenue growth. As a result, we've noted a more compressed and competitive landscape in that segment. Furthermore, with our acquisitions and the recent assets we've integrated from the Army, Navy, and Air Force transportation sectors, we've identified gaps in the market regarding technical and supply chain offerings. Customers are seeking solutions that are not widely available, presenting us with growth opportunities. While some areas are more competitive, this is why we've adjusted our strategy to address the gaps we've identified.

Great. So how does the competitive environment for the aviation MRO services related to defense customers compare to the base operations work? Is it less competitive or more favorable than what you acquired with HSS?

I would say that the base operations work is very commoditized and operates under a cost-plus contract. It relies more on labor than on technical services. The significance of the HSS acquisition lies in the substantial technical capabilities we gained from that business. The more technical expertise you possess, the better you can differentiate yourself and distance yourself from the competition.

Perfect. Thanks.

Thank you. There are no further questions at this time. I would like to turn the call back over to John Cuomo for any closing comments.

Thanks everybody for the time today. We really appreciate your continued interest in VSE. And we look forward to speaking with you later this year on our first quarter earnings call. Thanks everybody. And have a wonderful day.

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.